Texas Is America's Top State for Business 2012

The Lone Star State makes a triumphant return as America’s Top State for Business—its third time at the top of our rankings.

"Listen, there is a reason that Caterpillar moved their hydraulics manufacturing and their engine manufacturing to the state of Texas," said Gov. Rick Perry in November during the CNBC Republicanpresidential debate.

This year’s study comes amid slowly improving fortunes for the states. A recovering economy coupled with lingering fiscal restraint following the Great Recession are helping states improve their finances for the first time in years.

“Revenue performance remains positive, expenditures in most states are stable and few states have faced mid-year budget shortfalls in fiscal year 2012,” the National Conference of State Legislators reported in May. That means states can resume their focus on the battle for business — and jobs.

In addition to the top spot overall, Texas has the nation’s best Infrastructure,according to our study. It improved to second place for Technology and Innovation, and boasts the third lowest Cost of Living. The state's Workforceimproved to seventh best from 14th last year. Access to Capitaldeclined a bit, but Texas still finished in the top 10 (eighth). Perhaps most impressive, the Texas economy recovered from a rare stumble last year, when it finished 14th in the category, improving to fifth this year.

America's Top States For Business

Texas endured a wrenching budget crisis last year. While the state is still not out of the fiscal woods, it managed to emerge with its sterling, triple-A bond rating and stable outlook intact.

The state had to make some sacrifices though, and that hurt in some categories. Texas comes in 26th inEducation and 35th in Quality of Life. And while the state held the line on income taxes, the overall tax burden — including property and sales taxes — is high. That hurts Texas in the all-important Cost of Doing Business category, where it comes in 28th.

Since we began ranking the states in 2007, Texas and Virginia have traded places each year in first and second place. But the pattern was broken in 2012.

This year’s runner up is not Virginia butUtah, which surged from last year’s eighth-place finish. The Beehive State boasts low costs (11th lowest for Cost of Doing Business, sixth for Cost of Living), a world class Workforce (ninth place) and moves into the top 10 for Quality of Life. The state has seen an impressive influx of venture capital of late, jumping ten places to 13th for Access to Capital, and its Infrastructure improved to eighth place this year.

Virginia: Road to Trouble

So what happened to Virginia — last year’s top state?

The Commonwealth is still a contender, finishing a solid third overall. But it faltered in two categories in particular: Infrastructure andEconomy.

Infrastructure — specifically the state’s perpetually clogged highways — has long been an issue in fast-growing Virginia, and there is fresh evidence this year that the state is having trouble keeping pace. With some of the country's toughest commutes, the state dipped to number 33 in the category, down from 10th a year ago.

Virginia’s economy remains in the top tier. But it has suffered in part due to circumstances beyond its control. The state’s proximity to Washington, DC has helped in previous years. Late last year, however, Moody’s slapped a negative outlook on Virginia’s otherwise pristine bond rating because of the federal government’s fiscal crisis. That contributed to Virginia slipping to 10th from eighth in our Economy category this year.

While still the envy of most states, Virginia declined in a total of six categories in 2012. The other four are Cost of Doing Business (32/21), Education(13/6),Technology & Innovation (14/11) and Business Friendliness (4/3). In this competition, you can’t post that many declines and stay on top — or, it turns out, finish second either.

Top Five

Top Five: Ins and Outs

Rounding out the top five winners are one perennial favorite and one newcomer.

Fourth-ranked North Carolina is often a contender, thanks in large part to its well-educated workforce. This year, more of those workers are available. It’s a silver lining to a jobs crisis that has disproportionately affected the Tarheel State, where unemployment is considerably higher than the national average.

Cracking — or should we say fracking — our top five ranking for the first time is North Dakota, where an oil and gas boomfueled by the state’s Bakken Shaleformation shows few signs of easing. Improving to fifth overall from 13th place last year, North Dakota boasts the fastest growing economy in the country. Unemployment is practically non-existent. But there are indications North Dakota’s success is more than just a flash in the oil pan.

The state moves up in Quality of Life (5) as well as Business Friendliness (4), which measures the states’ legal and regulatory climates.

America's Top States For Business

But all is not Zen in the Peace Garden State. North Dakota still lags when it comes to Technology & Innovation (47) and Access to Capital (43).

Dropping out of the top five this year are Georgia(9/4) and Colorado(8/5). Georgia lost ground in the Education category, while in Colorado the Cost of Doing Business rose.

This year’s most improved state is Idaho, which climbed a whopping 18 spots to finish 13th overall. Like most of the country, Idaho’s economy has returned to more solid footing. But the state’s business costs improved as well, thanks to low wages and utility costs.

The biggest decline came in Massachusetts. A top-five finisher in 2010 and in sixth place last year, the Bay State tumbles all the way to 28th place this year. Still a top state for Education (3) and a magnet for capital (tied with California for No. 1 inAccess to Capital), the Massachusetts economy nonetheless faltered, dropping to 21st from 15th.

Also in the New England state, the Cost of Doing Business rose (49/41), and Infrastructure crumbled (45/29). Even in Technology & Innovation (7/3), the state that practically invented the high-tech corridor lost ground.

Providence Rhode Island

This year’s bottom state for Business, for a second straight year, is Rhode Island. The state finishes at or near the bottom for Infrastructure (50), Economy (49) and Business Friendliness (49). It's an expensive state in which to do business (45) and to live (44). The state also plunged in the Workforce (46/26) rankings.

But perhaps owing to the adage “buy low, sell high,” Rhode Island is seeing a small surge in investment, moving up in Access to Capital (10/35).

How does your state stack up? Check out our complete rankings. And just as you do every year, be sure to tell us what you think.